Federal Communications Commission FCC

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1 Before the Federal Communications Commission Washington, D.C In the Matter of Federal-State Joint Board on Universal Service Petition of TracFone Wireless, Inc. for Forbearance from 47 U.S.C. 214(e(1(A and 47 C.F.R (i CC Docket No ORDER Adopted: September 6, 2005 Released: September 8, 2005 By the Commission: Commissioner Abernathy issuing a statement. I. INTRODUCTION 1. In this Order, we address a petition filed by TracFone Wireless, Inc. (TracFone 1 pursuant to section 10 of the Communications Act of 1934, as amended by the Telecommunications Act of 1996 (the Act 2 requesting that the Commission forbear from the requirement that a carrier designated as an eligible telecommunications carrier (ETC for purposes of federal universal service support provide services, at least in part, over its own facilities. 3 TracFone requests that its eligibility for federal universal service support be limited to Lifeline only. Subject to the conditions that we describe below, we grant TracFone forbearance from the facilities requirement for ETC designation for Lifeline support only. 4 II. BACKGROUND 2. Procedural History: TracFone is a non-facilities-based commercial mobile radio service (CMRS provider (i.e., a pure wireless reseller that provides prepaid wireless telecommunications services. On June 8, 2004, TracFone filed a Petition for Forbearance from section 214(e of the Act, which requires that an ETC offer service using its own facilities or a combination of its own facilities and resale of another carrier s services (Forbearance Petition or Petition. 5 Contemporaneously with its Petition, TracFone filed 1 TracFone Wireless, Inc. Petition for Forbearance, CC Docket No , filed June 8, 2004 (Forbearance Petition or Petition. On February 17, 2005, pursuant to section 10(c of the Act, the Wireline Competition Bureau (Bureau extended until September 6, 2005, the date on which TracFone s Petition shall be deemed granted in the absence of a Commission decision that the Petition fails to meet the standard for forbearance under section 10(a. TracFone Wireless, Inc. s Petition for Forbearance from 47 U.S.C. 214(e(1(A and 47 C.F.R (i, CC Docket No , Order, 20 FCC Rcd 3677 ( Telecommunications Act of 1996, Pub. L. No , 110 Stat. 56 ( U.S.C. 214(e. 4 We note that this grant of forbearance does not establish TracFone as an ETC. We will address TracFone s petitions for ETC designations in subsequent orders. 5 On June 24, 2004, the Bureau issued a Public Notice seeking comment on TracFone s Petition for Forbearance. Parties are Invited to Comment on TracFone Wireless Petition for Designation as an Eligible Telecommunications Carrier in the State of New York and Petition for Forbearance from Application of Section 214, CC Docket No , Public Notice, 19 FCC Rcd (2004. Comments and replies to the June 24 th Public Notice were received 1

2 with the Commission petitions for ETC designation for several states. 6 On August 8, 2004, TracFone, in its reply comments, and shortly thereafter in its applications for ETC designation, amended its Petition and related ETC applications to limit its eligibility for federal universal service support to the Lifeline portion of the low-income program. 7 TracFone states that it will meet all ETC obligations except for the requirement to own facilities and commits to providing its Lifeline customers with access to E911 service, regardless of activation status and availability of prepaid minutes, and to requiring its customers to self-certify they are receiving only one Lifeline-supported service. 8 On September 24, 2004, TracFone amended its Petition a second time to include a request for forbearance from section (i of the Commission s rules, which provides that state commissions shall not designate as an ETC a carrier that offers services supported by federal universal service support mechanisms exclusively through resale of another carrier s service Applicable Statutes and Rules: The Act provides that only an ETC shall be eligible for universal service support. 10 To be eligible for ETC designation, a carrier must meet certain statutory requirements including offering service over its own facilities or a combination of its own facilities and resale of another on July 26 and August 9, 2004, respectively. In response to certain comments, TracFone limited its Petition to Lifeline support in its August 9 th reply comments. Because TracFone modified its Petition in its reply comments, commenters did not provide comment in the Forbearance proceeding on the Lifeline-only limitation. Despite this fact, commenters did address the Lifeline-only limitation in the related TracFone ETC proceedings, which TracFone likewise modified to reflect the request for limited universal service support. See The Wireline Competition Bureau Seeks Comment on Petitions Concerning Eligible Telecommunications Designations and the Lifeline and Link-up Universal Service Support Mechanism, CC Docket No and WC Docket No , Public Notice, 19 FCC Rcd ( TracFone has eight ETC petitions pending before the Commission. See TracFone Wireless, Inc. Petition for Designation as an Eligible Telecommunications Carrier in the State of New York, CC Docket No , filed June 8, 2004; TracFone Wireless, Inc. Petition for Designation as an Eligible Telecommunications Carrier in the Commonwealth of Virginia, CC Docket No , filed June 21, 2004; TracFone Wireless, Inc. Petition for Designation as an Eligible Telecommunications Carrier in the State of Florida, CC Docket No , filed June 21, 2004; TracFone Wireless, Inc. Petition for Designation as an Eligible Telecommunications Carrier in the State of Connecticut, CC Docket No , filed November 9, 2004; TracFone Wireless, Inc. Petition for Designation as an Eligible Telecommunications Carrier in the Commonwealth of Massachusetts, CC Docket No , filed November 9, 2004; TracFone Wireless, Inc. Petition for Designation as an Eligible Telecommunications Carrier in the State of Alabama, CC Docket No , filed November 9, 2004; TracFone Wireless, Inc. Petition for Designation as an Eligible Telecommunications Carrier in the State of Tennessee, CC Docket No , filed November 9, 2004; TracFone Wireless, Inc. Petition for Designation as an Eligible Telecommunications Carrier in the State of North Carolina, CC Docket No , filed November 9, TracFone Reply Comments, filed August 9, at 2-3 (August Reply Comments. See TracFone Wireless, Inc. Amendment to Petition for Designation as an Eligible Telecommunications Carrier in the State of Florida, CC Docket No , filed Aug. 16, 2004; TracFone Wireless, Inc. Amendment to Petition for Designation as an Eligible Telecommunications Carrier in the State of New York, CC Docket No , filed Aug. 16, 2004; TracFone Wireless, Inc. Amendment to Petition for Designation as an Eligible Telecommunications Carrier in the Commonwealth of Virginia, CC Docket No , filed Aug. 16, TracFone Reply Comments, filed October 4, 2004, at 3-4 (October Reply Comments; August Reply Comments at C.F.R (i; TracFone Wireless, Inc. Clarification of Petition for Forbearance, CC Docket No , filed September 24, U.S.C. 254(e. 2

3 carrier s service. 11 Only ETCs may receive high-cost and low-income support. 12 The low-income support mechanism of the universal service fund consists of the Lifeline and Link-Up programs Collectively, the Lifeline and Link-Up programs are designed to reduce the monthly cost of telecommunications service and the cost of initial connection, respectively, for qualifying consumers. Lifeline provides low-income consumers with discounts of up to $10.00 off of the monthly cost of telephone service. 14 Link-Up provides low-income consumers with discounts of up to $30.00 off of the initial costs of installing telephone service. 15 Recognizing the unique needs and characteristics of tribal communities, enhanced Lifeline and Link-Up provide qualifying low-income individuals living on tribal lands with up to $25.00 in additional discounts off the monthly costs of telephone service and up to $70.00 more off the initial costs of installing telephone service. 16 TracFone seeks eligibility to receive support only for the Lifeline portion of the low-income program U.S.C. 214(e(1(A. 12 A carrier need not be an ETC to participate in the schools and libraries or rural health care programs. 47 U.S.C. 254(h(1(A and (B(ii. See Federal-State Joint Board on Universal Service, CC Docket No , Report and Order, 12 FCC Rcd 8776, 9015, para. 449 (1997 Universal Service Order (concluding that any telecommunications carrier, not just ETCs, may receive universal service support for providing supported services to schools and libraries; see also Federal-State Joint Board on Universal Service, CC Docket No , Fourteenth Order on Reconsideration, 14 FCC Rcd 20106, , para. 19 (1999 (Fourteenth Order on Reconsideration (finding that although only ETCs may receive universal service support, a non-etc that provides supported services to eligible rural health care providers may offset the value of the discount provided against its universal service contribution obligation and, to the extent such discount exceeds its contribution obligation, receive a refund C.F.R , See 47 C.F.R (a(2. 15 See 47 C.F.R (a(1. 16 See 47 C.F.R (a(4, (a(3. Under the Commission s rules, there are four tiers of federal Lifeline support. All eligible subscribers receive Tier 1 support which provides a discount equal to the ETC s subscriber line charge. Tier 2 support provides an additional $1.75 per month in federal support, available if all relevant state regulatory authorities approve such a reduction. (All fifty states have approved this reduction. Tier 3 of federal support provides one half of the subscriber s state Lifeline support, up to a maximum of $1.75. Only subscribers residing in a state that has established its own Lifeline/Link-Up program may receive Tier 3 support, assuming that the ETC has all necessary approvals to pass on the full amount of this total support in discounts to subscribers. Tier 4 support provides eligible subscribers living on tribal lands up to an additional $25 per month towards reducing basic local service rates, but this discount cannot bring the subscriber s cost for basic local service to less than $1. See 47 C.F.R August Reply Comments at 3 (requesting eligibility for Lifeline only support; October Reply Comments at 4 (specifying it does not seek eligibility for Link-Up support. TracFone has filed details of two proposed Lifeline plans. TracFone Wireless, Inc. Ex Parte Supplement to Petition for Forbearance and Petitions for Designation as an Eligible Telecommunications Carrier, CC Docket No , at 3-5, filed July 15, The first plan, the Pay- As-You-Go Lifeline Plan, provides Lifeline customers with access to the network for one year and 30 minutes of airtime each month. Under TracFone s proposal, the cost of this plan would be completely subsidized by the Lifeline support. Id. at 3-4. The second plan, the Net10 Pay-As-You-Go Lifeline Plan, would require the Lifeline customer to purchase buckets of minutes to be used in an identified period of time that are discounted from TracFone s retail price to reflect the Lifeline subsidy. Id. at 4-5. One variation under this plan would require Lifeline customers to redeem coupons monthly. Id. TracFone states that, under any plan, the Administrator would provide support to TracFone as it does to all other recipients of Lifeline support; that is, TracFone s Lifeline support will be calculated on a monthly basis and distributed on a quarterly basis. Letter from Mitchell F. Brecher, Counsel for TracFone, to Marlene H. Dortch, FCC, CC Docket No , at 3, filed August 22,

4 5. The Commission has in the past declined to extend ETC status to pure resellers. In the 1997 Universal Service Order, the Commission found that the plain language of the statute requires that a carrier seeking ETC designation must own facilities, at least in part, thus precluding a carrier that offers services solely through resale from being designated as eligible. 18 The Commission reasoned, without distinguishing among the various universal service support programs, that it was appropriate to deny pure resellers universal service support because pure resellers could receive the benefit of universal service support by purchasing wholesale services at a price that includes the universal service support received by the incumbent provider. 19 Later in the 1997 Universal Service Order, the Commission found that although resellers were not eligible to receive universal support directly, they were not precluded from offering Lifeline services. Resellers could offer Lifeline services by purchasing services at wholesale rates pursuant to section 251(c(4 that reflect the customer-specific Lifeline support amount received by the incumbent local exchange company (LEC and then passing these discounts through to qualifying low-income customers. 20 The Commission, in so finding, considered only that the underlying carrier was an incumbent LEC, subject to price-regulated resale obligations. Further, the Commission declined to forbear from the facilities requirement, finding that the statutory criteria had not been met. 21 Making no finding with respect to the first two prongs, the Commission concluded that forbearance was not in the public interest because allowing pure resellers to receive universal service support would result in double recovery by the resellers. 22 In making this finding, however, the Commission again did not distinguish among the various universal service support programs. Specifically, it did not consider whether providing only Lifeline support directly to a pure wireless reseller would result in double recovery. III. DISCUSSION 6. For the reasons provided below, we conditionally grant TracFone s Petition and forbear from section 214(e of the Act and sections (d(1 and (i of our rules for the purpose of considering its Petitions for ETC Designation for Lifeline support only. 23 If ultimately granted ETC status, TracFone will be eligible only for Lifeline support. As a limited ETC, TracFone would not be eligible to receive support for the other supported services under the low-income program nor would it be eligible, as an ETC, to receive support for services supported by the other universal support mechanisms. 24 We will address TracFone s petitions for ETC designation in subsequent orders. In sum, this grant is conditional on TracFone (a providing its Lifeline customers with 911 and enhanced 911 (E911 access regardless of activation status and availability of prepaid minutes; (b providing its Lifeline customers with E911- compliant handsets and replacing, at no additional charge to the customer, non-compliant handsets of existing customers who obtain Lifeline-supported service; (c complying with conditions (a and (b as of the date it provides it provides Lifeline service; (d obtaining a certification from each Public Safety 18 Id. at 8875, para. 178 (adopting Joint Board s analysis and conclusion; see Federal-State Joint Board on Universal Service, CC Docket No , Recommended Decision, 12 FCC Rcd 87, , paras ( Universal Service Order, 12 FCC Rcd at 8866, para. 161 and 8875, para Id. at 8972, para The Commission noted that it would reassess this approach in the future if the Lifeline program appeared to be under-utilized. Id. 21 Id. at , para Id. 23 In addition, and on our own motion, we forbear from section (d(1 of the Commission s rules. 47 C.F.R (d(1. This section mirrors section 214(e of the Act and requires that ETCs be facility-based, at least in part. We apply the same forbearance analysis we applied to section 214(e to this section of our rules in determining that forbearance is warranted. 24 See n.16, supra, for discussion regarding participation by non-etcs in the schools and libraries and rural health care programs. 4

5 Answering Point (PSAP where TracFone provides Lifeline service confirming that TracFone complies with condition (a; (e requiring its customers to self-certify at time of service activation and annually thereafter that they are the head of household and receive Lifeline-supported service only from TracFone; and (f establishing safeguards to prevent its customers from receiving multiple TracFone Lifeline subsidies at the same address. 25 Finally, as explained below, within thirty days of the release of this Order, we require TracFone to file with the Commission a plan outlining the measures it will take to implement these conditions. 7. Section 10 of the Act requires that the Commission forbear from applying any regulation or any provision of the Act to telecommunications services or telecommunications carriers, or classes thereof, in any or some of its or their geographic markets, if the Commission determines that the three conditions set forth in section 10(a are satisfied. Specifically, section 10(a provides that the Commission shall forbear from applying such provision or regulation if the Commission determines that: (1 enforcement of such regulation or provision is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory; (2 enforcement of such regulation or provision is not necessary for the protection of consumers; and (3 forbearance from applying such provision or regulation is consistent with the public interest In addition, when considering the public interest prong under section 10(a(3, the Commission must consider whether forbearance will promote competitive market conditions. 27 If the Commission determines that such forbearance will promote competition among providers of telecommunications services, that determination may be the basis for a Commission finding that forbearance is in the public interest. 28 Forbearance is warranted, however, only if all three prongs of the test are satisfied. For the reasons explained below, we find that TracFone satisfies all three prongs. 9. This Petition requires that we consider the statutory goals of two related but different provisions of the Act. We first examine the statutory goals of universal service in section 254 specifically in the 25 Commenters have raised concerns about the administrative costs, complexities, and burdens of granting this Petition and presumably the associated ETC designation petitions. See Letter from Robin E. Tuttle, USTelecom, to Marlene Dortch, FCC, CC Docket No (filed August 17, 2005 (USTelecom August 17 Ex Parte. We believe that this conditional forbearance will serve to further the statutory goal of the providing telecommunications access to low-income subscribers while establishing the necessary safeguards to protect the universal service fund and the functioning of the low-income support mechanism. To the extent, however, that our predictive judgment proves incorrect and these conditions prove to be inadequate safeguards, the parties can file appropriate petitions with the Commission and the Commission has the option of reconsidering this forbearance ruling. See Petition for Forbearance of the Verizon Telephone Companies Pursuant to 47 U.S.C. 160(c, WC Docket No , Memorandum Opinion and Order, 19 FCC Rcd 21496, , para. 26 n.85 (2004; see also Petition of SBC Communications Inc. for Forbearance from Structural Separations Requirements of Section 272 of the Communications Act of 1934, As Amended, and Request for Relief to Provide International Directory Assistance Services, CC Docket No , Memorandum Opinion and Order, 19 FCC Rcd 5211, , para. 19 n.66 (2004; Cellnet Communications, Inc. v. FCC, 149 F.3d 429, 442 (6 th Cir Additionally, we note that the conditions we impose here will be incorporated into any grant of the ETC designation petitions and any violation of such conditions may result in loss of ETC status U.S.C. 160(a U.S.C. 160(b. 28 Id. 5

6 context of low-income consumers. 29 We then consider the statutory purpose underpinning the facilities requirement in section 214(e as it relates to qualifying for federal low-income universal service support. After careful examination of the regulatory goals of universal service as applied to low-income consumers, we determine that a facilities requirement for ETC designation is not necessary to ensure that a pure wireless reseller s charges, practices, classifications or regulations are just and reasonable when that carrier seeks such status solely for the purpose of providing Lifeline-supported services. Indeed, for the reasons provided below, we find that the facilities requirement impedes greater utilization of Lifeline-supported services provided by a pure wireless reseller. 10. Universal service has been a fundamental goal of federal telecommunications regulation since the passage of the Communications Act of Congress renewed its concern for low-income consumers in the Telecommunications Act of 1996 when it established the principles that guide the advancement and preservation of universal service. 31 Specifically, the Act directs the Commission to consider whether consumers in all regions of the Nation, including low-income consumers and those in rural, insular, and high cost areas, have access to telecommunications [services] at rates that are reasonably comparable to rates charged in urban areas. 32 We therefore examine the facilities requirement from which TracFone seeks forbearance in light of the statute s goal of providing low-income consumers with access to telecommunications services. 11. Just and Reasonable: As an initial matter, we note that a provision or regulation is necessary if there is a strong connection between the requirement and regulatory goal. 33 Section 10(a(1 requires that we consider whether enforcement of the facilities-based requirement of section 214(e for a pure wireless reseller that seeks ETC designation for Lifeline support only is necessary to ensure that the charges, practices, classifications or regulations are just and reasonable and not unjustly or unreasonably discriminatory. 12. We find that the facilities requirement is not necessary to ensure that TracFone s charges, practices, and classifications are just and reasonable and not unjustly or unreasonably discriminatory where it is providing Lifeline service only. The Commission has in the past declined to extend ETC status to pure resellers because it was concerned about double recovery of universal service support. 34 In making this decision, however, the Commission considered the issue in the context of wireline resellers and without differentiating among the types of universal service support and the basis of distribution. Lifeline support, designed to reduce the monthly cost of telecommunications services for eligible consumers, is distributed on a per-customer basis and is directly reflected in the price that the eligible customer pays. 35 Because it is customer-specific, a carrier who loses a Lifeline customer to a reseller would no longer receive the Lifeline support to pass through to that customer. Thus, a wireless reseller who serves a Lifeline-eligible customer and receives Lifeline support directly from the fund does not receive a double recovery. By comparison, where the wholesale carrier is an incumbent LEC subject to price-regulated resale under section 251(c(4, the rate at which the reseller obtains the wholesale service is based on a state-mandated percentage U.S.C. 254(b( U.S.C. 151 ( to make available, so far as possible, to all the people of the United States a rapid, efficient, Nation-wide, and world-wide wire and communication service with adequate facilities at reasonable rates (emphasis added U.S.C. 254(b; see 1997 Universal Service Order, 12 FCC Rcd at 8789, para. 21 and 8793, para U.S.C. 254(b(3 (emphasis added. 33 See CTIA v. FCC, 330 F.3d 502, 512 ( Universal Service Order, 12 FCC Rcd at 8861, 8873, 8875, paras , 174, and C.F.R ,

7 discount off of the incumbent LEC s retail rate for the service, and any Lifeline support received by the incumbent LEC would therefore be reflected in the price charged to the reseller. 36 In this scenario, a reseller that also received Lifeline support could recover twice: first because the benefit of the Lifeline support is reflected in the wholesale price and second because the reseller also receives payment directly from the fund for the Lifeline customer. That, however, is not the case before us. TracFone, as a CMRS provider, does not purchase Lifeline-supported services from incumbent LEC providers. Because TracFone s CMRS wholesale providers are not subject to section 251(c(4 resale obligations, the resold services do not reflect a reduction in price due to Lifeline support. Therefore, we find that allowing TracFone to receive Lifeline support directly from the fund would not result in double recovery to TracFone and that the logic of the 1997 Universal Service Order does not apply here. 13. We agree with TracFone that, as a reseller, it is by definition subject to competition and that this competition ensures that its rates are just and reasonable and not unjustly or unreasonably discriminatory. 37 We note that TracFone s Lifeline offering will compete with at least one other Lifeline offering whether from the underlying CMRS provider, if an ETC, or from the incumbent wireline carrier. 38 We also believe that this competition will spur innovation amongst carriers in their Lifeline offerings, expanding the choice of Lifeline products for eligible consumers. We note that TracFone has created a wireless prepaid product that is neither dependent upon the retail service offerings of its underlying carriers nor simply a rebranding of the underlying carrier s retail service offering which may provide a valuable alternative to eligible consumers For the reasons provided above, we find that the requirements of the first prong of section 10(a are met. Where, as here, the wireless reseller is forgoing all universal service support but Lifeline, which is customer-specific and is designed to make telecommunication service affordable to eligible consumers, the facilities requirement is unnecessary to preserve the integrity of the universal service program or the fund. By limiting TracFone s eligibility to Lifeline support, the facilities requirement is not necessary to ensure that TracFone s charges, practices, and classifications are just and reasonable. 15. Consumer Protection: Section 10(a(2 requires that we consider whether enforcement of the facilities-based requirement of section 214(e for a pure wireless reseller that seeks ETC designation only for Lifeline support is necessary for the protection of consumers. We find that imposing a facilities requirement on a pure wireless reseller is not necessary for the protection of consumers subject to the conditions described below. Specifically, we conclude that forbearance from this provision will actually benefit consumers. Indeed, if TracFone is ultimately granted limited ETC status, it would be offering Lifeline-eligible consumers a choice of providers not available to such consumers today for accessing telecommunications services. The prepaid feature may be an attractive alternative for such consumers who need the mobility, security, and convenience of a wireless phone but who are concerned about usage charges or long-term contracts. We also note that TracFone has committed to ensuring that all of its consumers will be able to place enhanced 911 (E911 calls from their handsets even if the consumer s service is not active or does not have prepaid minutes available See 47 C.F.R. 251(c(4. 37 Forbearance Petition at See 47 C.F.R (a (requiring ETCs to offer Lifeline service. 39 TracFone states that its customers pay in advance for minutes of use, without term contracts or termination fees, other extraneous or pass-through fees, credit checks, or deposits. TracFone also states that its pricing is uniform across its service areas despite the costs associated with any particular underlying carrier. Forbearance Petition at August Reply Comments at 10. 7

8 16. Given the importance of public safety, we condition this grant of forbearance on TracFone s compliance with the E911 requirements applicable to wireless resellers, as modified below, for all Lifeline customers. In light of the condition discussed below, that TracFone ensure its customers receive only one Lifeline-supported service, we find it essential that TracFone s Lifeline-supported service be capable of providing emergency access. Given the possibility that this Lifeline-supported service will be the customers only means of accessing emergency personnel, we require that TracFone provide its Lifeline customers with access to basic and E911 service immediately upon activation of service. 41 We note that this condition is consistent with TracFone s representation that its Lifeline customers will be able to make emergency calls at any time. 42 To demonstrate compliance with this condition, TracFone must obtain a certification from each PSAP where it provides Lifeline service confirming that TracFone provides its customers with access to basic and E911 service. TracFone must furnish copies of these certifications to the Commission upon request. 43 As an additional condition, TracFone must provide only E911-compliant handsets to its Lifeline customers, and must replace any non-compliant handset of an existing customer that obtains Lifeline-supported service with an E911-compliant handset, at no charge to the customer. The Commission has an obligation to promote safety of life and property and to encourage and facilitate the prompt deployment throughout the United States of a seamless, ubiquitous, and reliable end-to-end infrastructure for public safety. 44 The provision of 911 and E911 services is critical to our nation s ability to respond to a host of crises, and this Commission has a longstanding and continuing commitment to a nationwide communications system that promotes the safety and welfare of all Americans, including Lifeline customers. 45 We believe that these conditions are necessary to ensure that TracFone s Lifeline customers have meaningful access to emergency services. We reiterate that, with the possibility that the Lifeline service will be the customer s only access to emergency services and given the potential gravity of harm if such Lifeline customers cannot obtain such access, we believe that these conditions will further the protection of such Lifeline customers. 17. We are not persuaded by some commenters concerns regarding the impact on the size of the universal service fund and the associated contribution obligation if we grant this Petition. 46 Because section 10(a(2 requires that we consider the welfare of all consumers, we must consider the effect a grant of this Petition will have on consumers who will likely shoulder the effects of any increased contribution obligation since carriers are permitted to recover their contribution obligations from 41 Under section 20.18(m of our rules, wireless resellers have an independent obligation, beginning December 31, 2006, to provide access to basic and E911 service, to the extent that the underlying facilities-based licensee has deployed the facilities necessary to deliver E911 information to the appropriate PSAP. 47 C.F.R (m. Section 20.18(m further provides that resellers have an independent obligation to ensure that all handsets or other devices offered to their customers for voice communications are location-capable. Id. Under our rules, this obligation applies only to new handsets sold after December 31, Id. As a condition of this grant of forbearance, however, we require that TracFone, if granted ETC status, meet the requirements of section 20.18(m for all of its Lifeline customers as of the date it provides such Lifeline service. 42 August Reply Comments at 10 (given E911 capabilities of its service and handsets, TracFone envisions that its service really will serve as a lifeline for those eligible customers participating in the program. 43 We recognize that, as a practical matter, if TracFone s underlying facilities-based licensee has not deployed the facilities necessary to deliver E911 information to the appropriate PSAP, TracFone will not be able to offer Lifelinesupported service to customers residing in that area. 44 Applications of Nextel Communications, Inc. and Sprint Corporation For Consent to Transfer Control of Licenses and Authorizations, WT Docket No , Memorandum and Order, FCC , para. 144 (rel. August 8, Id. 46 See, e.g., Comments of TDS Telecommunications Corp., filed September 20, 2004, at 5-6 (TDS Comments. 8

9 customers. 47 If TracFone is able to obtain ETC designation for Lifeline-only services, we do not expect this to significantly burden the universal service fund and thus negatively affect consumers through increased pass-through charges of the carriers contribution obligations. The Commission has recognized the potential growth of the fund associated with high-cost support distributed to competitive ETCs. 48 TracFone, however, would not be eligible for high-cost support. In 2004, low-income support accounted for only 14 percent of the distribution of the total universal service fund; whereas, high-cost support accounted for 64.2 percent. 49 Any increase in the size of the fund would be minimal and is outweighed by the benefit of increasing eligible participation in the Lifeline program, furthering the statutory goal of providing access to low-income consumers. Significantly, granting TracFone s Petition will not have any effect on the number of persons eligible for Lifeline support. 18. We further safeguard the fund by imposing additional conditions on this grant of forbearance. Specifically, as a further condition of this grant of forbearance and in addition to all other required certifications under the program, we require that TracFone require its Lifeline customers to self-certify under penalty of perjury upon service activation and then annually thereafter that they are the head of household and only receive Lifeline-supported service from TracFone. 50 The penalties for perjury must be clearly stated on the certification form. Additionally, in order to further strengthen the head of household requirement, we require that TracFone track its Lifeline customer s primary residential address and prohibit more than one supported TracFone service at each residential address. 51 These conditions are consistent with TracFone s representations in the record. 52 In light of these safeguards, we are not dissuaded from granting forbearance by concerns of double recovery relating to customers receiving Lifeline support for more than one service. 53 We recognize, however, that the potential for more than one 47 See 47 C.F.R See Federal-State Joint Board on Universal Service, Virginia Cellular, LLC Petition for Designation as an Eligible Telecommunications Carrier in the Commonwealth of Virginia, CC Docket No , Memorandum Opinion and Order, 19 FCC Rcd 1563, 1577, para. 31 (2004; see also Federal-State Joint Board on Universal Service, Highland Cellular, Inc. Petition for Designation as an Eligible Telecommunications Carrier in the Commonwealth of Virginia, CC Docket No , Memorandum Opinion and Order, 19 FCC Rcd 6422, , para. 25 ( Wireline Competition Bureau, Federal Communications Commission, Trends in Telephone Service, Table 19.1 and Chart 19.1 (June As of March 2004, the average monthly federal support per non-tribal Lifeline customer was $8.55. Id. at Table See 47 C.F.R Tribal customers are eligible for up to an additional $25 per month in Lifeline support. 47 C.F.R (a(4. 50 October Reply Comments at 3-4 (commitment to require Lifeline customers to self-certify that they do not receive support from any other carrier. To monitor compliance, we require that TracFone maintain the self-certifications and provide such documentation to the Commission upon request. 51 See Reply Comments of TracFone Wireless, Inc. to Petition for ETC Designation in Virginia, filed September 7, 2004, at 7-8 (fully capable of fulfilling all record keeping requirements and has the ability to track each consumer s primary residence. See also Letter from Mitchell F. Brecher, Counsel for TracFone, to Marlene H. Dortch, FCC, CC Docket No , filed July 13, 2005 (capable of fulfilling certification and verification requirements (TracFone July 13 Ex Parte. 52 See n.56 and n.57 above. We point out that these conditions are in addition to, and do not supplant, the certification and verification eligibility already required by our rules for federal default states and any similar state rules for the non-federal default states. See, e.g., 47 C.F.R (requiring initial certification and annual verification of eligibility. 53 See TDS Comments at 5-6; Reply Comments of the United State Telecom Association, filed October 4, 2004, at 6 and n.18; letter from Katherine O Hara, Verizon, to Marlene H. Dortch, FCC, CC Docket No , at 1, filed August 9, 2005 (Verizon Ex Parte; USTelecom August 17 Ex Parte at 4. 9

10 Lifeline-supported service per eligible consumer is an industry-wide problem. 54 We are confident that these conditions of this grant of forbearance will eliminate this concern with respect to TracFone s customers. Additionally, we encourage comment on this issue in the Comprehensive Universal Services Program Management proceeding to address the potential for abuse throughout the industry USTelecom raised concerns about the fact that TracFone distributes its service through retail outlets. 56 USTelecom argues that TracFone will not have the requisite control over the retailer s employees to ensure compliance with Lifeline rules and certifications. We recognize that this may be a problem and thus require that TracFone distribute its Lifeline service directly to its Lifeline customers. Specifically, customers may purchase handsets at TracFone s retail outlets, however, we require that TracFone deal directly with the customer to certify and verify the customer s Lifeline eligibility. Of the two methods for certifying and verifying customer eligibility offered by TracFone, we reject the point of sale procedures that would allow TracFone Lifeline customers to submit qualifying information to the retail vendor. 57 TracFone must have direct contact with the customer, whether by telephone, fax, Internet, in-person consultation or otherwise, when establishing initial and continued eligibility. 20. Certain commenters argue that the prepaid, resold nature of TracFone s proposed service offering will facilitate fraud, waste, and abuse in the Lifeline program. 58 We find that this concern is more properly addressed in any order resolving TracFone s petitions for designation as an ETC. In the ETC designation proceedings, if TracFone s petitions are granted, we will address how Lifeline support will be calculated and distributed if the prepaid nature of TracFone s service offering requires such clarification. 21. In light of the conditions we have outlined here, we believe that appropriate safeguards are in place to deter waste, fraud, and abuse. We strive to balance our objective of increasing participation in the low-income program with our objective of preventing and deterring waste, fraud, and abuse. We find that we have struck the appropriate balance here. We are also mindful of the fact that other prepaid pure wireless carriers may similarly seek eligibility for Lifeline-only support. Given the safeguards we put in place aimed at ensuring that only eligible consumers receive such support and that they receive such support only once, we do not believe that similar requests will have a detrimental impact on the fund. We note that to the extent any similarly situated prepaid wireless reseller seeks forbearance from these requirements for the purpose of providing only Lifeline support, it will be expected to comply with all the conditions we impose upon TracFone herein. 22. Accordingly, we find that, subject to the 911 and E911 conditions and the self-certification and address limitation conditions set out above, the ETC facilities-based requirement is not necessary for consumer protection. We thus conclude that the second prong of section 10(a is satisfied. 23. Public Interest: Section 10(a(3 requires that we consider whether enforcement of the facilitiesbased requirement of section 214(e for a pure wireless reseller that seeks ETC designation for Lifeline 54 See Verizon Ex Parte at 1; USTelecom August 17 Ex Parte at 2, See Comprehensive Review of Universal Service Fund Management, Administration, and Oversight, Federal State Joint Board on Universal Service, Schools and Libraries Universal Service Support Mechanism, Rural Health Care Support Mechanism, Lifeline and Link-Up, Changes to the Board of Directors for the National Exchange Carrier Association, Inc., WC Docket Nos , 02-60, and CC Docket Nos , 97-21, FCC , para. 22 (rel. June 14, 2005 (Comprehensive Universal Services Program Management. 56 See USTelecom August 17 Ex Parte at TracFone July 13 Ex Parte at Letter from Jeffrey S. Lanning, USTelecom, to Marlene H. Dortch, FCC, CC Docket No , at 3-5, filed August 26, 2005; Reply Comments of Verizon, filed October 4, 2004, at 3. 10

11 support only is in the public interest. In this instance, based on the record before us, we find that the statutory goal of providing telecommunications access to low-income consumers outweighs the requirement that TracFone own facilities, where TracFone, should it be designated an ETC, will be eligible only for Lifeline support. Thus, we find that requiring TracFone, as a wireless reseller, to own facilities does not necessarily further the statutory goals of the low-income program, which is to provide support to qualifying low-income consumers throughout the nation, regardless of where they live. 24. The Lifeline program is designed to reduce the monthly cost of telecommunications service for qualifying low-income consumers. 59 Presently only about one-third of households eligible for low-income assistance actually subscribe to the program. 60 We recently expanded eligibility criteria and outreach guidelines for federal default states in an effort to increase participation. 61 On July 26, 2005, we launched a joint initiative with the National Association of Regulatory Utility Commissioners to raise awareness of our Lifeline and Link-Up programs among low-income consumers. 62 We believe even more can be done to further expand participation to those subscribers that qualify and thus further the statutory goal of section 254(b. Therefore, consistent with the Commission s assertion in the 1997 Universal Service Order concerning under-utilization of the program, we conclude it is appropriate to consider the relief requested with the goal of expanding eligible participation in the program. 63 With only about one-third of Lifelineeligible households actually subscribing, we believe that granting TracFone s Petition serves the public interest in that it should expand participation of qualifying consumers. Accordingly, we conclude that forbearing from the facilities requirement for Lifeline support only, subject to the conditions set forth above satisfies the requirements of section 10(a( Within thirty days of this release of this Order, we require that TracFone file with the Commission a plan outlining the measures it will take to implement the conditions outlined in this Order. This plan will placed on public notice and will be considered by the Commission in TracFone s ETC designation proceedings. For the foregoing reasons and subject to the conditions above, we find that the third prong of section 10(a is satisfied. 26. Finally, we reject USTelecom s argument that TracFone has not requested forbearance from the facilities requirement in section 254(e and that without such forbearance TracFone cannot fulfill the obligations of an ETC. Specifically, section 254(e requires that a carrier that receives such support shall use that support only for the provision, maintenance, and upgrading of facilities and services for which the support is intended. 64 USTelecom emphasizes that the words facilities and services are joined by the conjunctive article and and therefore an ETC must use any universal support received for facilities as well as services. 65 We disagree with USTelecom s interpretation. First, we read this provision together with the sentence that precedes it. The preceding sentence states that only an ETC shall be eligible to receive specific Federal universal service support. 66 The next sentence, which USTelecom quotes, then C.F.R Lifeline and Link-Up, WC Docket No , Report and Order and Further Notice of Proposed Rulemaking, 19 FCC Rcd 8302, 8305, para. 1 and Appendix K at Table 1.B. 61 Id. at 8305, para FCC and NARUC Launch Lifeline Across America to Raise Awareness of Lifeline and Link-Up Programs, News Release, July 26, Universal Service Order, 12 FCC Rcd at 8972, para U.S.C. 254(e. 65 USTelecom August 17 Ex Parte at 5 n U.S.C. 254(e (emphasis added. 11

12 requires that such service, which we find refers to the specific universal support from the previous sentence, be used only for purposes for which the support is intended. Reading these sentences together in their entirety, we find that Congress intended that a carrier must use the universal support received to meet the goals of the specific support mechanism under which it was distributed. For example, a carrier who receives specific Lifeline support must use that support to reduce the price of access to telecommunications services for the eligible customer. Second, we note that not all the nominalized verbs in the sentence quoted by USTelecom, provision, maintenance, and upgrading, can be read to apply to both facilities and services. What for example would it mean to maintain a service apart from the facilities? We also note that the nominalized verbs themselves are joined by the conjunctive article and. Therefore, extending USTelecom s logic, any universal support received by a carrier must always be used for the provision, maintenance, and upgrading of both facilities and services. The terms maintenance and upgrading as generally associated with a carrier s network and not with service itself. Thus, USTelecom s reading of section 254(e would require us to interpret the term service as surplusage a result that must be avoided when the statute admits to other interpretations. 67 We find the more appropriate reading is to consider these terms in the disjunctive. Thus, we conclude that an ETC receiving Lifeline support uses this specific universal service support for the purposes for which it was intended when it reduces the price of the Lifeline service by the amount of the support. IV. ORDERING CLAUSE 27. Accordingly, IT IS ORDERED THAT, pursuant to sections 4(i, 10, 214, and 254 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i, 160, 214, and 254, the Petition for Forbearance filed by TracFone Wireless, Inc. on June 8, 2004, and amended on August 9, 2004 and September 24, 2004, IS GRANTED subject to the conditions set forth above and, on our own motion, we forbear from enforcing 47 C.F.R (1(d. FEDERAL COMMUNICATIONS COMMISSION Marlene H. Dortch Secretary 67 See, e.g., TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001; Duncan v. Walker, 533 U.S. 167, 174 (

13 STATEMENT OF COMMISSIONER KATHLEEN Q. ABERNATHY Re: Federal-State Joint Board on Universal Service; Petition of TracFone Wireless, Inc. for Forbearance from 47 U.S.C. 214(e(1(A and 47 C.F.R (i (CC Docket No I am very pleased to join in today s decision, which will help expand the availability of Lifeline subsidies to low-income users of resold wireless telecommunications services. In the 1996 Act, Congress directed the Commission to ensure that all Americans, including low-income consumers, have access to telecommunications services and information services. One critical component of the Commission s effort to guarantee such access is the Lifeline program, which provides discounts to monthly telephone service for the less fortunate among us. Unfortunately, however, a 2004 analysis performed by Commission staff indicated that only about a third of households eligible for Lifeline support actually subscribe to the program. While it is clear that today s action will not close that gap on its own, I believe it is essential that we take all possible steps to ensure that low-income users are not barred from utilizing available support on the basis of the specific technologies they wish to use or the specific business plans pursued by their service providers. By providing support to resold wireless services, we are indeed extending a line to customers who might not otherwise make use of the Lifeline program, and thus are helping to fulfill Congress s vision of truly universal service. 13